Beware of festive home loan offers

[nirmalts]

Many banks (including public sector ones) are offering special interest rates now (claming them to be festive season offers). But there is a catch....The floating rates offered by these banks are not "floating" in its real sense.

A floating rate of any bank is based on a reference lending rate (xxPLR). What bank offers is usually a plus or minus from these reference rates. When you shop for home loans at floating rate, after you check the interest rate, the next equally important thing to ask for is the formula on how the rate is arrived based on PLR. For example, if the PLR of bank is 14 and they are offering an interest rate of 11%, then the formula should be PLR-3 (or 300 bps). Unless this is mentioned in the agreement, do not sign it.

Most banks including LIC Housing Finance Limited, SBI etc are now offering interest rates lesser than 11% . But beware... there is a catch. These rates are for a limited time (which the ads/agents do not really tell you). The interest would be mentioned as, for example, 10.5%. The formula would be mentioned as, for example, PLR - 3 (where current PLR = 14). Hey, that makes it 11%. Yes, thats the catch. You are being offered a loan at 11% but a festive discount of further 0.5%. This would last only till the date the bank resets their PLR. Assume, in the above case that the bank after 3 months does not change its PLR. Your interest rate would still go up from 10.5% to 11% (because that is what the formula says, PLR - 3 in your agreement).

Enjoy the fesitive season, but be a bit careful with banks during this time...

Nirmal

[Zappo]

Are you saying that the bank revists the reference lending rate and your consequent EMI every quarter? That is to say are you implying that the discounted rate is only for a quarter?

[nispatel]

Originally Posted by nirmalts

Many banks (including public sector ones) are offering special interest rates now (claming them to be festive season offers). But there is a catch....The floating rates offered by these banks are not "floating" in its real sense.

A floating rate of any bank is based on a reference lending rate (xxPLR). What bank offers is usually a plus or minus from these reference rates. When you shop for home loans at floating rate, after you check the interest rate, the next equally important thing to ask for is the formula on how the rate is arrived based on PLR. For example, if the PLR of bank is 14 and they are offering an interest rate of 11%, then the formula should be PLR-3 (or 300 bps). Unless this is mentioned in the agreement, do not sign it.

Most banks including LIC Housing Finance Limited, SBI etc are now offering interest rates lesser than 11% . But beware... there is a catch. These rates are for a limited time (which the ads/agents do not really tell you). The interest would be mentioned as, for example, 10.5%. The formula would be mentioned as, for example, PLR - 3 (where current PLR = 14). Hey, that makes it 11%. Yes, thats the catch. You are being offered a loan at 11% but a festive discount of further 0.5%. This would last only till the date the bank resets their PLR. Assume, in the above case that the bank after 3 months does not change its PLR. Your interest rate would still go up from 10.5% to 11% (because that is what the formula says, PLR - 3 in your agreement).

Enjoy the fesitive season, but be a bit careful with banks during this time...

Nirmal

Nirmal,

I think there is misunderstanding.. Agree that bank always come to interest rate for a perticular customer as
Prime Landing Rate + or - discount
e.g. 14 - 3 = 11% -> Customer A

But whey they come up with offer based on festivity or credential or long term relation with customer ( e.g. Private Banking Customer) or whatever name they come up with, they get extra discount and that stays through out tenure. So in this case, it will be like
PLR - STD discount - festive discount
e.g 14 - 3 - 0.5 = 10.5 %. - > Customer B

When next reset happens, PLR only changes and not discount. For example, there is rate hike to PLR to 15 %. Then effective interest rate will be 12 % Customer A and 11.5 % for Customer B.

While above said, bank does jugglery in the absence of the transperent benchmark. They sometime come up with new internal bench mark for example in the time of decreasing interest. And there by they include new customer to this new bench mark PLR with lesser interest rate and old customer to old PLR bench mark which is at higher interest rate and old customer continue to pay premium as they don't have option but to remain stuck as going to a new financier would incure 2% to 2.5 % penelty of remaining principle + 0.5 processing charge.

It's greedy world out there...

[nirmalts]

Originally Posted by nispatel

But whey they come up with offer based on festivity or credential or long term relation with customer ( e.g. Private Banking Customer) or whatever name they come up with, they get extra discount and that stays through out tenure. So in this case, it will be like
PLR - STD discount - festive discount
e.g 14 - 3 - 0.5 = 10.5 %. - > Customer B

Hello Nispal,

I dont think this is the case. I got my loan processed with LIC HFL and have the sanction letter with me.

It says,
Floating rate : 10.5% (special floating rate, HPLR - 275 bps, HPLR = 13.75). (100 bps = 1%).

You see the formula does not match. I talked to my loan agent. He said dont worry about all this sir, the floating rate trend is to go down. I called up main branch of LIC. They clearly said 0.5% is a festive offer which will last till the next PLR reset. If it was a discount for the entire tenure this would have been in the sanction letter as you pointed out (HPLR - 275 bps - 50 bps).

Nirmal

[Zappo]

Is it true that all banks charge Pre EMI till the full home loan is disbursed? I am hunting for a home loan and it seems like till the full loan is disbursed, which may stretch up to 1 year or more, they will keep charging me Pre EMIs.

Now, Pre EMIs is a loss making proposition. I keep paying interest for a year or more but the principle amount stays intact! Thats a couple of lakhs, probably, down the drain.

IDBI is even cleverer (bigger conmen?). They said no Pre EMIs. However when I inspected the deal closely they say 18 months of Pre EMI holiday. I immediately got suspicious with the holiday word. On grilling them they say sir no Pre EMIs only that the interest gets added to your principle amount when the actual EMIs start. Which basically means not only that I pay the interest for the period (albeit later) but I also pay interest on that interest for the loan tenure (as the interest becomes a part of the principle). What crap!

Now, is their any bank that charges me straight EMIs from day one, when the disbursals begin, rather than charging me Pre EMIs till the final disbursal?

[seby_v]

Originally Posted by Zappo

Is it true that all banks charge Pre EMI till the full home loan is disbursed? I am hunting for a home loan and it seems like till the full loan is disbursed, which may stretch up to 1 year or more, they will keep charging me Pre EMIs.

I think, for IDBI there is a provision where the borrower can request the bank to start the EMI from the first installement itself. In this case, the amount over the interest of the disbursed amount is adjusted against the principal.

I am not very sure of this. You could get in touch with your representative.

-Seby

[rkg]

Originally Posted by Zappo

Is it true that all banks charge Pre EMI till the full home loan is disbursed? I am hunting for a home loan and it seems like till the full loan is disbursed, which may stretch up to 1 year or more, they will keep charging me Pre EMIs.

Now, Pre EMIs is a loss making proposition. I keep paying interest for a year or more but the principle amount stays intact! Thats a couple of lakhs, probably, down the drain.

IDBI is even cleverer (bigger conmen?). They said no Pre EMIs. However when I inspected the deal closely they say 18 months of Pre EMI holiday. I immediately got suspicious with the holiday word. On grilling them they say sir no Pre EMIs only that the interest gets added to your principle amount when the actual EMIs start. Which basically means not only that I pay the interest for the period (albeit later) but I also pay interest on that interest for the loan tenure (as the interest becomes a part of the principle). What crap!

Now, is their any bank that charges me straight EMIs from day one, when the disbursals begin, rather than charging me Pre EMIs till the final disbursal?

you can pay full EMI from day one by asking the bank to disburse full amount or even of they disburse in batches you can opt for full EMI. you insist on this. modern banks are old money lenders in new disguise so they don't want you to pay early. one of my friend is paying like that.

[Technocrat]

you can pay full EMI from day one by asking the bank to disburse full amount or even of they disburse in batches you can opt for full EMI. you insist on this. modern banks are old money lenders in new disguise so they don't want you to pay early. one of my friend is paying like that.

yes this is correct, recently on my Brother's case we were told that Pre-EMI would start, on asking if we can start with Full EMI from Day one he said yes & thats what we have opted for.

[Zappo]

Is that so? Which banks are these? Except for HDFC no other banks as of now is agreeing to this. They all say that EMIs can only begin after the loan is completely disbursed. Till then I can only pay Pre EMIs.

HDFC though seems to offer something they call Tranche EMIs where the EMIs begin from day 1. By any chance are you all talking about HDFC?

Originally Posted by rkg

you can pay full EMI from day one by asking the bank to disburse full amount...

Unfortunately that is not in my hand. The bank makes an inspection at every stage and makes disbursals on completion of each milestone. The builders make their payment plans accordingly. So if the bank says that it releases 20% amount on the completion of the basement then they will do so only when that happens and not before that...

[mobike008]

Deb, all the private sector banks charge pre-emi's ( i am a victim of 4 pre-EMI months) till full disbursement. In fact i hastened my process of paying up the amount to the builder even before due date just to save the pre-EMI money. It worked out well, but, it may not be a good idea for some shady builders where you end up paying much in advance ( as compared to the completion of the flat or house) and you will be out on a huge limb.

Regarding, which bank does not charge Pre-EMI's, i don't know about public sector banks but they are certainly way too cheaper in terms of interest rates and interest calculation methodology ( day-diminishing, instead of month diminishing) and also don't charge you interest for paying up large sums in between to reduce your loan amount. Try, SBI, Punjab National Bank etc.

[Zappo]

Yaar Abhi there are two problems in approaching the nationalized banks.
1. I am buying a house in Kolkata. Now if you approach a nationalized bank they just pooh pooh you away asking you to try kolkata branches. I can not do so sitting here in hyderabad.
2. This is an extension of the previous reasoning. Nationalized bank do not do any paperwork themselves. Even for the agreement (between the lender and the borrower) they ask you to approach some chartered accountant types who will help you with this. Of course everyday they ask for a new document. Only when you get that after running around the whole week and then approach them again they put in the farmaaish for the next document. So sitting here I can not do all these from Kolkata branches and the local ones here won't even touch my case with a barge pole. They are just too conservative.

[rkg]

Originally Posted by Zappo

Is that so? Which banks are these? Except for HDFC no other banks as of now is agreeing to this. They all say that EMIs can only begin after the loan is completely disbursed. Till then I can only pay Pre EMIs.

HDFC though seems to offer something they call Tranche EMIs where the EMIs begin from day 1. By any chance are you all talking about HDFC?



Unfortunately that is not in my hand. The bank makes an inspection at every stage and makes disbursals on completion of each milestone. The builders make their payment plans accordingly. So if the bank says that it releases 20% amount on the completion of the basement then they will do so only when that happens and not before that...

my friend took from ICICI . he took loan in may 2005. he is taking possession of the flat now in dec 2007( L&T south city delay by more than 14 months). he asked the ICICI to pay full and started paying full EMI from may 2005 onwards.
if you are buying from a reputed builder , chances of bank agreeing to disburse full in advance are higher. if you are building house yourself they may not give full in advance.
however HDFC is not a fair lender. go through fine print carefully.
however now a days many reputed builders in Bangalore are offering to pay pre EMI as per news paper ad's. however i did not go though the details

[Technocrat]

Yes in our Case its an HDFC Home Loan. Also even in our case disbursement has not happened completly but we still opted for EMIs from Day one instead of paying pre-EMIs till full disbursement is done.

[rkg]

you can approach PSU banks. they do give loans in case like you.
they do now a days have agents to do paper work stuff. if the builder in kolkatta has got the project approved by any PSU bank approach that bank. it will be easier.
my professor bought a house ( not flat) in hyderabad way back in 2000 while he was working on tirupati. SBI gave him the loan.
if you are buying a house then ask the bank first what all the documents needed. usually they have a check list. get all those documents and submit. it is not that difficult.
but almost all PSU banks do charge pre EMI interest like private banks.

[Zappo]

As of now the best sounding offer is from HDFC. They are saying 5600 or so flat processing (others ask between 0.5 and 1% of the loan amount) fee, EMIs from day one (Tranche EMI as they call it) and 10.5% interest rate. The agent is himself saying that wait till this month is over. HDFC is expected to bring its rates further down from December.

Only thing is that the skeptical person that I am I believe there has to be some catch even in this tranche EMI scheme of HDFC. I need to see more minutely I guess.